Recently CNBC published an article about how reverse mortgages can help protect retirees from the unknowns of inflation.
From the article:
“Reverse mortgages — also known as home equity conversion mortgages, or HECMs — offer seniors aged 62 or older the chance to borrow money from their home’s equity.
These fixed- or variable-rate loans are designed for older Americans who plan to stay in their single-family home.
The variable-rate option offers a line of credit, with no obligation to withdraw money, and the unused balance may continue to grow over time. (The fixed-rate version doesn’t offer the same benefit, making it less useful in fighting inflation.)
Typically, older retirees may borrow a higher amount of equity.
For example, with a 3% expected rate, a 62-year-old homeowner may borrow about 52% of their home’s value. The percentage rises to nearly 61% at age 75, Pfau said.
Variable rates may range from 2.5% to 4% right now, depending on short-term variable interest, often tied to Treasurys, he said.
For the line of credit, heirs may pay off the loan once the borrower dies, allowing them to keep or sell the property.
Typically, retirees spend down their investment portfolios while preserving home equity.
But research suggests making a reverse mortgage part of a retirement plan may offer an unexpected benefit, Pfau said.
“The bigger impact is you’re reducing pressure on the portfolio in retirement,” he said.
Research shows that a reverse mortgage may offer some retirees more money to spend while giving their portfolio more of a chance to grow.
The perk of opening a reverse mortgage line of credit early, especially when interest rates are low, is that the retiree may borrow more now. This move may offer more time for the untapped balance to grow.
Moreover, higher inflation will speed into faster growth for the line of credit, he said.
“For anyone who’s thinking about a reverse mortgage, opening it before interest rates are higher, can be quite valuable if you’re in the home you’re thinking you’ll stay in,” he added.
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Jan Jordan is a Reverse Mortgage Specialist serving the Erie, Dacono, Fort Collins, Loveland, Greeley, Longmont, Boulder and other Front Range areas of Colorado, as well as the Cheyenne and Laramie communities of Wyoming. Contact Jan and learn if reverse mortgage is right for you.